Jarden lowered its rating on Air New Zealand to underperform and slashed its 12-month target price by 11.6 per cent as it warned investors to be aware of the very real prospect of material shareholder dilution.
Yesterday, the national carrier said it expects to report an underlying loss in the 2020 financial year and will "continue to seek out further opportunities" to cut costs, including more job losses, as Covid-19 keeps it virtually grounded.
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The stock increased 0.8 per cent to $1.33 in early trading today, adding to yesterday's 5.2 per cent gain.
Jarden analysts Andrew Steele and Lily Zhuang said they "downgrade Air NZ to underperform reflecting what we view as a negatively skewed risk/reward". Their 12-month target price for the stock is now 84 cents.
The analysts expect Air New Zealand to deliver "material losses" both this year and the next and "we expect the company will need to access the Crown loan and as a result incur significant interest costs."
Jarden analysts updated their forecasts to show a $705 million net loss in the June 2020 year and a $238m loss the following financial year. They expect the airline to be back in the black in 2022 with a net profit of $211m.
Air New Zealand moved swiftly to secure a facility of up to $900m from the Government as soon as international travel restrictions were announced. Yesterday, the airline said it still has $640m of short-term liquidity and hasn't had to use any of the Crown's money yet.
Chief financial officer Jeff McDowall told analysts he expects the carrier would have to draw on the government money if its short-term liquidity gets to the $200m-to-$250m range.
"It's there for a purpose and we do think it's important to have it there," he said.
Jarden analysts said once minimum working capital liquidity requirements are taken into account, they expect the airline will need to access the government loan in the December quarter of the 2021 financial year.